Taking profits early, is this a sensible trading strategy? | Forex Factory

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Taking profits early, is this a sensible trading strategy?

  • #1
  • First Post: Nov 15, 2006 2:05am Nov 15, 2006 2:05am
I'm fairly new to trading, and so far my experience is limited to 3 months paper trading. Recently I've started to make a lot of progress, in that I've actually had profitable weeks and my percentage of winning trades is rising.

Lately I've been playing with the idea of having a set goal of pips per week, and finding the most conservative way to consistently reach that goal each week. One way I've considered making this goal more achievable is by taking profits very early in order to drastically increase my percentage of winning versus losing trades.

I've been backtesting the Sidus system on hourly charts with this idea in mind, and my results so far have been positive. If I were to set a 10pip take profit on every trade I make, the vast majority of my trades would be profitable. Of course by doing this, I miss out on many points that could be had if I held the trade longer. However, my trading goals right now are fairly conservative since I'm a beginner. My main goal is 30-50 pips a week, which would only require a few winning trades if I took very low profits on each trade.

Is this a sensible approach to trading? Does anyone else take very small profits to reduce their percentage of losing trades?
  • #2
  • Nov 15, 2006 2:26am Nov 15, 2006 2:26am
Quoting mickeymickey
I'm fairly new to trading, and so far my experience is limited to 3 months paper trading. Recently I've started to make a lot of progress, in that I've actually had profitable weeks and my percentage of winning trades is rising.

Lately I've been playing with the idea of having a set goal of pips per week, and finding the most conservative way to consistently reach that goal each week. One way I've considered making this goal more achievable is by taking profits very early in order to drastically increase my percentage of winning versus losing trades.

I've been backtesting the Sidus system on hourly charts with this idea in mind, and my results so far have been positive. If I were to set a 10pip take profit on every trade I make, the vast majority of my trades would be profitable. Of course by doing this, I miss out on many points that could be had if I held the trade longer. However, my trading goals right now are fairly conservative since I'm a beginner. My main goal is 30-50 pips a week, which would only require a few winning trades if I took very low profits on each trade.

Is this a sensible approach to trading? Does anyone else take very small profits to reduce their percentage of losing trades?
If you enter with 10'000, take out 8'000 and let 2'000 with a close stop loss so that you profit will cover the stop loss.
  • #3
  • Nov 15, 2006 3:10am Nov 15, 2006 3:10am
I basically do what Highway3000 says. Close a part of my trade and let the rest ride.


The thing is, it sounds like your trades are not high probablility trades, or like you're not confident the trade will develop the way you've gone. I've been learning and applying the idea of aiming for about 15 pips per trade. But for that I'm looking for situations where I think the pair has room to move 30+ pips. If there is room to move 30+ pips, locking in 15 or so is not difficult. If you're targeting something that has a potential of 10 pips to take 10 pips, then things become difficult.

I don't know the Sidus system, but maybe try to see if you can get that system to deliver more than 10 pips comfortably, so you can 'lock in' 10 pips and let the trade develop to capture more when possible.

One piece of advice I keep coming by over and over from various sourcs is the idea that "one of the major mistakes of new traders is getting in late, and getting out too early".

Think of it this way. IF you have a 10 pip limit on all orders, what is your stop? Too close and the trade may not have room to develop. Too much and losses will set back your winners. If it's 10 pips, you're probably going to find that your paper backtests may work out, but in live trading, things go agsinst you once too much.
  • #4
  • Nov 15, 2006 3:11am Nov 15, 2006 3:11am
if you have a 10 pip TP and 100 SL, chances are that your winning trades could be over 80% but still you would loose money. some people use this strategy but to me it seems wrong. its said that trend traders have 25-30% winning trades, yet they come out on top of others because they ride the moves till the end.
  • #5
  • Nov 15, 2006 9:13am Nov 15, 2006 9:13am
The stop loss is a factor I'm still considering. Usually when I trade I have a stop loss set between 20-30 pips. I'm pretty sure that with the amount of winning trades I'll have taking only 10 pips, my losses won't make too much of an impact.

The trades I would be taking almost all have potential for way more than 10 pips. I chose 10 pips because it's a low number and it would make nearly every trade profitable. It also makes reaching my current conservative goals fairly easy, since it would only take a few winning trades per week to reach.

I like the idea of closing some of a trade once I reach 10 pips and then letting the rest ride the trend. I'll test that out and see if it's more effective for reaching my current goals.
  • #6
  • Nov 15, 2006 2:57pm Nov 15, 2006 2:57pm
The advice you hear often is: "cut your losses short and let your profits run".
  • #7
  • Nov 15, 2006 4:01pm Nov 15, 2006 4:01pm
Quoting piccolo
if you have a 10 pip TP and 100 SL, chances are that your winning trades could be over 80% but still you would loose money. some people use this strategy but to me it seems wrong. its said that trend traders have 25-30% winning trades, yet they come out on top of others because they ride the moves till the end.
here here
  • #8
  • Nov 15, 2006 9:41pm Nov 15, 2006 9:41pm
The goal isn't to get the highest percentage of favorable trades, but to get the most total pips across all your trades. So even though it feels nice to have a high win rate, that goal might actually be counterproductive if you're limiting your wins too much (high win rate but less total pips). Also, if you take 10 pips profit but you have a 5 pip bid/ask spread, that's not nearly as nice as a 40 pip profit with a 5 pip spread.

What about having a couple of targets? Take half your position off at +10 pips and move your stop loss to breakeven plus a pip or two and give the trade a little more time to develop and hit your second target. If it doesn't seem to be moving, take out the second half of your position. Or if it turns against you, take it off before your S/L is hit.

I'm a real believer in statistically studying a system to figure out a reasonable target to set for a system. For example, if your system generally gives about 15 pips when it works then a 10 pip target is within reason. But if it goes for 40 pips usually, why not take some off at 10 and some off at 35-40? I spend a lot of time gathering statistics for the time period, currency pair and pattern I trade. (Also helps me set good stop losses). So I guess what I'm really saying is try it both ways over a large number of trades and see which is more profitable for you.

If you're profitable and still new to this, then you're doing great no matter how you choose to take your profits :-)

Squid
  • #9
  • Nov 16, 2006 1:25pm Nov 16, 2006 1:25pm
Well, I have started with similar system. But I was looking for even smaller profits per trade. I had a goal 10pips/day, so 50/week. 10pips/day I was making with 2 trades usually, taking 5pips profit each. 1 trade during a day and second in the evening before going to bed. Idea was simple, even without a huge knowledge, you can probably create a system, where you can recognize when you can catch 5pips profit. I was profitable 90-95%. I traded 20k having $2000, 30k having $3000 on my account etc. So I could faster and faster gain another thousand and increase a lot size. That was my money management. Things went wrong when I started to be impatient. I thought I can make money faster and I made a few stupid trades. So now I'm with $260 LOL on my account and starting to combine my old technique with some new knowledge. But idea of taking constantly small pips profits and increasing with time a lot size - doesn't sound for me so bad. It worked for me until I was following my rules I’ve created...
  • #10
  • Nov 16, 2006 6:27pm Nov 16, 2006 6:27pm
Well I disagree with systems aimed at making Small Profits, okay sometimes it's fine to go errrr dunno and take a small profit rather than letting it stop you out, but................

If you aim for 15pips profit ( 20pip move with Comms included ), but put a 30pip stop in play, just to break even you've got to win 60% of the time, I tried this had a 67% win Ratio, even had a good run quadrupling the account in a few weeks, then got knickeled and dimmed back to +£12 seriously.

Currently basing trades on a 30pips stop, Min 30pip profit, but moving Stop up to limit loss as the trade goes, and when possible holding for all of the market move, ie 100+ pips ( GBP USD )

Alot less stressful than day trading, with a 15pip stopped 10times in a row system

( want to trade, 60pip stop, buying a lot at pos #1 -20, and at -40, all out at -60, rarely get stopped from my system, but not the balls / account size yet )
Nothing to it, but to do it!!! Stick to the plan FOOL!!!!
  • #11
  • Nov 20, 2006 8:09pm Nov 20, 2006 8:09pm
If you choose to just take 10-15 pips a trade is not bad if you want to take profits slowly. I use to trade like that. Then when it finally came time to lose, I haven't made enough to take a loss. You will lose 10 pips or more if you are using stops in its minimum. So I started to find indicators that will tell me where the market is going as oppose to what its doing. So I've learned to let trades ride out until I get the reversal signals. Then I close. Get the most out of trades. This is the only way to make millions. Sometimes you will have to pay upm your sacrafice in order to strike it rich. But when you lose it will not hurt all the profits that you gained. So, if you trade to make 10 pips and your stop is 10 pips, getting stopped out will brake you. Maximizing your moves and being stopped out at ten pips will maake you rich. don't limit yourself. Take a gamble or educated guess to maximize your profits.
A. Finesse Williams Making Millions One Pip At A Time!
  • #12
  • Nov 21, 2006 11:51am Nov 21, 2006 11:51am
Quoting highway3000
If you enter with 10'000, take out 8'000 and let 2'000 with a close stop loss so that you profit will cover the stop loss.
I am a little confused. If you enter a trade with 10,000, how can you take out 8000 in the middle of it?
I am sure I missunderstand something.

Thank you.
Steve
  • #13
  • Nov 21, 2006 12:07pm Nov 21, 2006 12:07pm
if the broker allows you to trade whatever size you want then where is the problem in taking 8000 off the table?
  • #14
  • Nov 21, 2006 1:41pm Nov 21, 2006 1:41pm
It's never about your ratio of wins to losses. If you're consistently able to increase you account balance, consider yourself a successful trader. Test your strategy on a demo or a micro account, to see if you're able to achieve this. If you are, no one needs to assure you that you're going down the right lane.
  • #15
  • Last Post: Nov 22, 2006 10:46am Nov 22, 2006 10:46am
I have back tested many, many strategies and haven’t found one that made money on the long run by taking profits early. I’m not saying is not possible, I’m saying it is very difficult The reason that taking profit early is attractive is because winning a trade makes you feel good momentarily, but I believe that trading is more about statistics and not about emotions. I think you are focusing on having a high percentage of winners and not on having a high percentage of account growth. I have seen systems that only win 30% of the time and are very profitable. So as JosThellen wrote “cut your losses short and let your profits run” is the key to success on this business. <?xml:namespace prefix = o ns = "urn:schemas-microsoft-com:office:office" /><o></o>

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I’ll see if I have some time today to post one system that wins around 90% of the time but is destined to fail in the long run. I will also show you the performance report for the last 3 years. This may explain a little better this concept.



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